Foreign investors and economists contend that Vietnam's draft plan for the development of its retail sector will spur mass urbanization and tie outside competitors up in red tape.

The Vietnamese government should focus on its development goals instead of creating barriers to limit investment or protect domestic firms from foreign competition, experts said.

Last week, the Ministry of Industry and Trade released its draft, in an effort to solicit feedback from stakeholders before submitting a final proposal to the government.

The government will issue a decree on the retail industry next year, establishing a new legal framework across the board.

A policy change is eagerly anticipated by wholly foreign-owned firms which have been allowed to operate in Vietnam since 2009, two years after the country joined the World Trade Organization.

Professor Robert A. Rogowsky of the Center for Asia-Pacific Economic Cooperation told Thanh Nien Weekly that the development of the retail industry could play an important role in the growth and development of rural regions.

However, he said, the new draft proposal fails to capitalize on this opportunity.

Rogowsky, who teaches at George Mason University, fears that the new proposal will require foreign retailers to fill out a mountain of paperwork from a vast array of government agencies.

He contends that the most complicated and difficult procedure, under the new plan, will be the process of obtaining a license for a second retail facility.

Under the new proposal, domestic investors in retail facilities larger than 1,000 square meters will have to undergo a lengthy consultation process with a council of government officials and economic advisors to determine market need.

Foreign retailers wishing to open more than one store, regardless of the size, must undergo the same process, also known as an Economic Need Test, or ENT.

"It [the economic need test] is just another barrier to entry and a way for officials to slow down and control economic growth," said president of the French Association of Retail Marketing and Strategy, Francois Bobrie.

Bobrie said one of the questions on the ENT is: "Will new entrants create too much competition for those already in the market given the amount of floor space, number of customers and growth of the market?"

According to the recent draft proposal, foreign firms would be excluded from the test if their second retail facilities are franchised or licensed by Vietnamese-owned businesses.

Rural areas

Do Ba Long, deputy director of the Industry and Trade Department in Ba Ria-Vung Tau Province, said the proposed regulations will support the development of retail industry in urban rather than in rural areas and draw people into cities for shopping and even working.

The new regulations will place more pressure on municipal authorities in zoning residents and urban development, said Long, who added that 70 to 80 percent of the population resides in rural areas.

Professor Rogowsky said that the Vietnamese government should learn lessons from Malaysia which has used flexible policies to convince foreign retailers like the UK-based Tesco to set up retail facilities in rural regions in order to prevent mass urbanization.

Hoang Xuan Tho, a senior official from the Ministry's Trade Research Institute, said many rural areas require a huge amount of money to develop wholesale and retail facilities like markets, supermarkets and convenience stores.

Tho estimates that it would cost VND6 trillion to develop 82 agricultural wholesale markets throughout the Vietnamese countryside and upgrade 31 others. He also estimates that it would cost VND3 trillion to build markets in communes and border regions between 2010 and 2020.

He said the development funding will ultimately have to be obtained from state and private investors.

Vietnam's retail industry grew 25 percent this year, according to the General Statistics Office. In the first eleven months of 2010, sales of goods and services totaled VND1,425.2 trillion.